1. South Africa’s Port Governance and Pricing: Dilemmas and Reforms Dr Mihalis (Micky) Chasomeris

2. South Africa’s Seaports

3. Table 1. Public and Private Sector Market Share, A Comparison of 2010 and 2016 Source: URBAN-ECON (2010), Havenga et al.,(2017), Gumede and Chasomeris (2017).
Service
NPA
Port Operations
TPT
Private Sector
Year
2010
2016
Marine Services
100%
Bulk Cargo Handling
37%
52%
63%
48%
Breakbulk Cargo Handling
78%
69%
22%
31%
Container Handling
97%
98% 3% 2%
Car (on wheel) handling 0%

4. Revenue Requirement =
+ Regulatory Asset Base (RAB) X Weighted Average Cost of Capital (WACC) + Operating Costs + Depreciation + Taxation Expense + (-) Claw back + (-) Excessive Tariff Increase Margin Credit (ETIMC) + (-) Weighted Efficiency Gains from Operations

5. Themes on Port Governance Submissions on the following Review Periods
Table 2 
Themes on Port Governance
Submissions on the following Review Periods
Requested Tariff Increase
Frequencies
18.06%
13.2%
14.39% Σ
Allowed Tariff Increase
2.76% 0%
8.15%1
5.9%2
Theme
2009/ /12
2012/13
2013/14
2014/15
Current structure inhibits global competitiveness of ports, and high port tariffs hinder stakeholders’ profitability
38  7 31
 10 58
Revenue Requirement Model is unjustifiable and arbitrary 36 4  5  8  53
Misalignments with international tariff standards and inconsistent pricing of some port commodities – User-pays principle is preached but not practiced
13   8 6  8 35
Inefficiency and low productivity of ports 13 4 1
No accounting for prevailing economic conditions 24 3 2 30

6. Above-inflation increases requested annually
15  7 1 3 26
WACC, MRP and betas used to assess risk are all inaccurate 4 10 11 24
Non-compliance with national policies and inconsistency 13 20
Lack of transparency in reporting or justifying tariffs 2 5 18
TNPA practices do not support job creation 9 17
Regulatory Asset Base is not cleaned up and it is overvalued - 6
Abuse of monopoly power 8  -
Poor service delivery
Ports as national asset are used for profiting, not national economic objectives

7. Projects from previous financial year are seldom complete - 3 1 -  4
Lack of consultation with industry prior to altering tariffs 2
Transition from TNPA to NPA (Pty) Ltd is still pending
Source: Meyiwa & Chasomeris, 2016

8. Table 3. Historic differences between the figures proposed by TNPA and those allowed by the Ports Regulator, 2010/11 to 2016/17
2010/2011
2011/2012
2012/2013
Tariff Components
TNPA Prop.
PR Decision
RAB
(R Million)
45 677
43 165
51 480
48 529
58 490
60 001
WACC
6.02%
5.15%
5.38%
4.71%
8.97%
6.13%
Marine RR
6 868
6 020
7 641
6 523
9 645
6 150
Tariff Increase
10.62%
4.42%
11.91%
4.49%
18.06%
2.76%
CPI Increase
4.3%
5.0%
5.6%

9. Table 3. Historic differences between the figures proposed by TNPA and those allowed by the Ports Regulator, 2010/11 to 2016/17

10. Tariff Increase 14.29% 11.41% 11.22% 8.34% 3.80% 1.53%
Table 4. Recalculation of NPA Tariff Application 2014/15 (Chasomeris, 2015)
Scenario 1
Scenario 2 3
Scenario 4
Scenario 5
Scenario 6
Recalculation of Tariff Application
Change: MRP to 6.3
If βd is considered
If MRP = 6.3 and βd is considered
If βa = 0.4, MRP = 6.3 and βd is considered
If βa = 0.35, MRP = 6.3 and βd is considered
WACC
5.82%
5.48%
5.45%
5.11%
4.57%
4.30%
RAB
64 694
Plus: Claw Back
118
Revenue Requirement
10 940
10 717
10 702
10 480
10 129
9 954
Less: Real Estate
2113
FY 2014/15 RR
8 827
8 604
8 589
8 367
8 016
7 841
Tariff Increase
14.29%
11.41%
11.22%
8.34%
3.80%
1.53%
Tariff Increase: Less ETIMC
8.41%
5.53%
5.34%
2.46%
-2.08%
-4.35%

11. Table 5. Recalculating the TNPA Tariff Application for 2016/17: Changing Market Exposure Risk Assumptions (Gumede & Chasomeris, 2016)

12. Revenue Required Conclusions
RR model may incentivise port capital expenditure (investments), operating expenditure and port prices at levels that are not in the best interests of the country
RR method does not provide appropriate incentives to reduce costs and to improve productivity in the ports.
If the RR method continues to be used, then the value of the components in the RR model need to be reviewed, including the adoption of an asset beta lower than the present 0.5, and the inclusion of a debt beta.

13. SA total port costs deviation to global average
Source: Ports Regulator of South Africa

14. Ports Regulator of South Africa, 2014

15. Ports Regulator of South Africa, 2014

16. Ports Regulator of South Africa, 2014

17. Ports Regulator of South Africa, 2014

18. Ports Regulator of South Africa, 2014

19. Table 6. Distribution of Ports Costs among Port User Groups
2017/18
PR Proposed
Cargo Owners
55%
35%
Tenants
24%
29%
Shipping Lines
21%
36%
Source: Author created from TNPA Tariff Application for 2018/19

20. Ten Year Gradual Shift in Port Cost Allocation
Source: Author generated from Ports Regulator data.

21. Tariff Strategy (Ports Regulator, 2017)
Ports Regulator’s tariff trajectory (over 10 year period):
Cargo Dues – 5.2% real price decrease on an annual basis;
Shipping Lines – 7.2% real price increase on an annual basis; and
Tenants – 2.8% real price increase on an annual basis.
The allocation envisages the following:
Steep price reductions for Containers and Automotives; and
Marginal increase for Dry and break bulk commodities.

22. NPA Proposed Tariffs for 2018/19:
An average 10.00% increase for Marine Services tariffs applicable to shipping lines with:
Port Dues tariff to increase by 14.05%;
Berthing Services tariff to increase by 11.15%; and
Other including Pilotage, Towage, VTS to increase by 7.04%.
An average 7.88% increase for cargo dues tariffs with:
FULL containers import and export tariffs to increase by 7.50%;
Automotive converted to unitary based tariff structure increasing by 5.00%;
Bulk tariffs increasing by 9.00% except:
Coal to increase by 10.00%; and
Ores and Minerals: Magnetite to increase by 10.00%.
• Other cargo dues increases by 8.45%.

23. Proposed long term end state cargo dues base tariffs
Sector
Measuring Unit
Rate/Unit (R)
Dry Bulk
Tons
6.53
Breakbulk
31.03
Liquid bulk
15.21
RoRo Imports
Unit per size category in line with TPT’s vehicle category classifications
51.30
RoRo Exports
26.65
Container Imports
Twenty foot Equivalent Units (TEU)
651.53
Container Exports
TEU
325.77

24. Tariff deviation from the base

25. Deviation of Commodities from Proposed Cargo Dues Base tariffs
Source: Gumede and Chasomeris (2017).

26. Commodities below and above the proposed cargo dues tariff base
Breakbulk
Dry-Bulk
Liquid-Bulk
Total
Import
Export
To increase 39 47 2 8
100
To decrease 38 40 33 7
154
Min (%)
-76
-91
-21
-55
-62
-81
Max (%)
303
232
801
575
287
190
Source: Gumede and Chasomeris (2017).

27. Tariff Structure Conclusions
Of the 254 commodity cargo dues examined by Gumede and Chasomeris (2017):
100 are below the base tariff and therefore being cross subsidised and may experience a relative increase in cargo dues over the next ten years, and
154 are above and therefore subsidising other cargoes and may experience a relative decrease in cargo dues over the next ten years.
The Ports Regulator proposed tariff structure appears to be an improvement, however:
TNPA and the Ports Regulator need to be transparent on the calculation of the base tariffs and provide access to information to allow stakeholders to make a more meaningful contribution towards governance, regulation and the pricing of South Africa’s ports (Gumede & Chasomeris, 2017)

28. Port Tariff Incentive Programme
“To support Beneficiation, Industrialisation, and Localisation through Port Tariff Regulation.
To create a mechanism in which cross-subsidies can be introduced that are in ‘the public interest’.
The PTIP was published on 31 March 2016 for public comment and widely consulted including government departments.
Currently in the final development phase.
Publication and awareness programme October/November 2017
Expected implementation: January 2018”
Source: Ports Regulator 2017.

29. Any Questions? Contact: Dr Mihalis Chasomeris chasomerism1@ukzn.ac.za

30. Discussion questions: 1) What is good and should be celebrated about South Africa’s system of ports? 2) How to improve the productivity and competitiveness of South Africa’s ports? 3) How to improve the pricing of SA’s ports?

31. Discussion Questions
4) How to improve the governance of SA’s ports? 5) Are there any tariff rebates or other support for exporters using SA’s ports? 6) Are there any opportunities for increased private sector participation or public private partnerships?